CAGR (compound annual growth rate)

The single steady annual growth rate that would take a starting value to an ending value over a given number of years.

Example

An investment that turns $10,000 into $20,000 over ten years has a CAGR of about 7.2%, even though no single year actually grew by exactly that amount.

Important

CAGR smooths a bumpy path into one tidy number - two investments with the same CAGR can have had very different, and very differently stressful, years along the way.

Related terms

• Compounding — Earning returns on your past returns, not only on your original money.
• Return — The gain or loss on an investment, usually expressed as a percentage of what was put in.

Lessons that explain it

• CAGR: the smoothed rate, and the path it deletes — Compound annual growth rate is the straight line drawn between two points. Two investments with identical CAGRs can be completely different experiences to live through. (11 min)
• Time-weighted and money-weighted: two true answers — One measures the decisions about what to hold; the other measures what actually happened to your money, including when you added it. They can disagree enormously. (13 min)
• How compounding works — Compounding is earning returns on your returns, not just your original money - and time, more than the rate itself, is what makes it powerful. (12 min)

All 578 terms in the Investing glossary